U.S. economy likely to expand 2.5 pct in 2018, CPI inflation likely to average 2.2 pct in 2017 – Lloyds Bank

Since mid-2009, the U.S. economic upswing has been underway and the jobless rate at 4.4 percent in June is close to the post-crisis low. Annualised growth in the June quarter, released last week, came in in at 2.6 percent after the soft 1.2 percent growth in the first quarter. The growth in the June quarter was led by stronger consumer spending. Consumer sentiment continues to be at historically elevated levels, while incomes are underpinned by employment growth.

The labor market continues to tighter. Nonfarm payrolls in June rose 222,000, although annual wage growth continues to be relatively contained and wider inflationary pressures have weakened in recent months. Annual growth in hourly earnings rose 2.5 percent in June from May’s 2.4 percent, while annual CPI dropped to 1.6 percent, as compared with 2.7 percent only four months earlier. The drop in headline inflation has not been driven mainly by energy prices. Core inflation has also dropped in recent months and hovers at around two-year low of 1.7 percent.

“We expect full-year growth to be around 2.2 percent, up from 1.6 percent in 2016”, stated Lloyds Bank in a research report.

For next year, the U.S. economy is expected to expand 2.5 percent, with some fiscal stimulus measures assumed from next year, although there is uncertainty about whether pro-growth measures would be implemented. Therefore, the risk to the next year growth projection is probably more to the downside.

“We also forecast CPI inflation to average 2.2 percent this year, based on our central expectation that it picks up from the current level in the second half of the year”, added Lloyds Bank.

At 22:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -71.0008. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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